Launch of Aid for Trade at a Glance 2013

It is my great pleasure to be here again at the WTO to present the 4th joint OECD-WTO report: “”.

We have come a long way since 2005, when we launched the initiative in Hong Kong at the 6th WTO Ministerial Conference. Each successive global review has deepened our analysis and broadened our understanding of the dynamics of aid, trade, development and their interaction. In parallel, more and more partner countries and donors have come on board as the tangible results of our efforts become apparent.

We are also covering new ground. Our first report in 2007 covered 7 countries and 39 donors. This year, by contrast, we based our analysis on 132 self-assessments from 42 donors; 9 providers of South-South cooperation and 80 developing countries, including 36 LDCs. For the first time, we solicited views from the private sector. More than 700 firms told us what it takes for suppliers from developing countries to successfully plug in to value chains. Three quarters of these were from developing countries. On the basis of these inputs, we now have at our disposal a powerful tool that is already changing the way we think about aid, trade and development. This tool is in high demand. Indeed, our last joint publication received over 130 000 hits on the OECD and WTO websites.

Of course, the world has changed since 2005. The fallout from the global financial crisis has left a legacy of sub-par growth and high unemployment. No country emerged unscathed. We are still struggling to secure a durable recovery. But there is hope on the horizon. Activity is picking up in the United States. Resolute policy intervention is starting to have an impact in Japan. And even if growth has slipped of late in the largest emerging economies, they are still, and will remain, important drivers of global growth.

In this environment of hesitant economic growth, calls for protectionism can be hard to resist, but we must resist them. Rather than sounding their retreat, governments should reaffirm their commitment to inclusive globalisation, powered by free trade, open markets and multilateral convergence. The 9th WTO Ministerial Conference in Bali will be an important opportunity to build momentum towards achieving these goals. I call on you, on all WTO Members, to give the world economy a shot in the arm by agreeing a comprehensive package of trade reforms that includes agriculture and has trade facilitation at its core.

Many of you are also exploring a range of bilateral and plurilateral agreements as “second best” options to open markets further. Again, I urge you to make every effort to ensure that such arrangements become “building blocks” rather than “stumbling blocks” of the multilateral trading system.

Facilitating trade can drive growth and strengthen Value Chains

Easing the movement of imports and exports across borders can significantly reduce the costs of trade, particularly for developing countries. OECD analysis shows that comprehensive trade facilitation reform has the potential to reduce trade costs by as much as 15.5% for some developing countries. Reducing global trade costs by 1% would in turn increase worldwide income by more than USD 40 billion, 65% of which would accrue to developing countries .

The OECD and WTO have been working jointly to better understand the dynamics of national, regional and global value chains including in developing countries. At the OECD Ministerial meeting in May, for instance, we released an update and expansion of the OECD-WTO Trade in Value Added database, as well as a policy report on how to maximise the benefits from value chains.

This new work shows that developing countries can greatly benefit from value chains by concentrating on areas of comparative advantage. Value chains offer an easier path to economic development than building vertically integrated production processes from scratch. But they also raise costs for those countries that stymie the flow of goods, services, information and people. We now know that barriers to imports end up hurting exports, by making them less competitive.

Our sector studies with the WTO and other IGOs demonstrate that developing countries are already well connected to value chains in textiles, tourism and agri-food, but these are only a small taste of what is possible. For their part, developing countries could capture more gains from trade and connect to more value chains by further improving their business climate, strengthening supply side capacities, and enhancing connectivity to international markets.

Today, in a strong statement of intent, governments and international organisations will come together to launch a joint statement calling for a WTO Trade Facilitation Agreement, and committing to help less developed countries implement it. Such an agreement would go a long way towards supporting the emergence of regional and global value chains, and the enhanced participation of developing countries in these fragmented production processes.

Aid for trade has fallen from recent highs but tangible results are being achieved

Since 2005, donors have allocated more than USD 170 billion to help developing countries achieve these goals. Due to the financial crisis however, aggregate aid for trade declined to USD 41.5 billion in 2011 . This is largely attributed to a reduced contribution by G20 countries, who are now likely to fall short of their pledge to maintain aid for trade at the average level from 2006-2008. These unfulfilled commitments are giving rise to missed opportunities such as reduced support for the large scale infrastructure projects needed to boost connectivity.

On the other hand, aid for trade for the lowest-income countries has been relatively less affected, while aid to private sector development and trade development programmes has become increasingly important. Commitments for trade facilitation projects, for instance, reached USD 380 million in 2011 giving us reason for optimism that we can progress this agenda in Bali and beyond. At the same time, South-South cooperation is also gaining traction in the aid for trade landscape as China, India and others ramp up their contributions.

There is abundant evidence that aid for trade is having a big impact. It is lowering trade costs and improving trade performance. More specifically, OECD analysis found that $1 in aid for trade is associated with an increase in developing countries’ exports by $8. For the poorest countries, the return is $20 . The impact is higher still for exports of parts and components, underscoring the benefits that value chains can offer to developing countries.

This analysis is backed up in concrete terms by the 270 aid-for-trade case studies incorporated into the previous Global Review. Examining these cases in detail has taught us that “Aid for Trade in Action” works best when it is focused on improving infrastructure, facilitating trade, and supporting the private sector. Such programmes are particularly effective when target countries have a supportive business environment, including stable macro-economic policies and an investment climate that encourages private investment.

Ladies and Gentlemen:

I’d like to conclude by emphasising the central role of the private sector in trade. Policymakers can help to till the soil to foster commerce, but it is ultimately businesses that plant the seeds of growth. Our challenge is to engage better with the private sector and to ensure that aid also promotes ‘investment for trade’. The Busan Partnership for Effective Development Cooperation offers a framework for ensuring that public and private sector funding streams are complementary.

Today, we a have a great opportunity to build on this and other initiatives to improve the effectiveness of aid for trade overall. I have every confidence that by working together we can strengthen aid for trade and cement its importance on the global policy agenda.

Today is also one of our last moments to recognise Pascal Lamy’s great contribution to the advancement of trade on so many planes in both developed and developing countries. I think everyone here feels deeply inspired by his service, and without a doubt, will work passionately to continue his great work.